Crowding-in or crowding-out?Employment in the public and the private sector in the OECD

Abstract

Does Ng crowd-out private sector employment over the business cycle? This question is not fully settled throw an empirical point of view. Thus, in this paper we look at public and private sector employment interactions since the 1960s for a number of other OECD countries. For the sake of robustness we apply a number of alternative empirical methodologies, and perform the analysis for two data samples. The paper reports that the sign of the correlation between public and private employment present a degree of heterogeneity across countries. Secondly, the role of institutional features is explored. We analyse which institutional features favour the existence of the crowding-out effect. Our findings show that the rigidity of labour and product markets has a key role in determining which the correlation is. Moreover, anglo-saxon countries show a differentiated pattern with a more plausible crowding-out effect and a less common positive correlation.